M.D.C. Holdings Announces 2019 Second Quarter Results
DENVER, July 31, 2019 /PRNewswire/ -- M.D.C Holdings, Inc. (NYSE: MDC), one of the nation's leading homebuilders, announced results for the quarter ended June 30, 2019.
Larry A. Mizel, MDC's Chairman and Chief Executive Officer, stated, "MDC turned in another strong performance in the second quarter of 2019, generating net income of $55 million, or $0.86 per diluted share. We continued to see healthy demand for our new home offerings during the quarter, with a 32% year-over-year increase in net new orders on an absorption pace of 4.1 homes per community per month. The robust demand we experienced has helped to stabilize the environment for pricing and incentives, which allowed us to achieve a homebuilding gross margin for the quarter of 19.5%. It also resulted in the biggest quarter-end unit backlog for our company in over 13 years. These achievements were a direct result of the investments we have made over the last several years, our focus on the more affordable segment and the ability of our talented employees to execute our strategic plan."
Mr. Mizel continued, "We ended the second quarter with 14% more active communities than we had at the end of the second quarter of 2018. A majority of these communities are targeted for the more affordable segment, which continues to be the deepest part of the market. We believe this combination of higher community count and favorable market positioning provides MDC with the opportunity for growth as we enter the second half of 2019."
Mr. Mizel concluded, "Our return metrics have improved significantly over the last several years thanks to the strategic moves we have made. We believe this operational momentum, coupled with our industry-leading dividend payout and balance sheet strength, provide MDC with a path to continued success."
2019 Second Quarter Highlights and Comparisons to 2018 Second Quarter
-- Home sale revenues of $732.8 million, down 2% from $749.6 million
-- Unit deliveries nearly unchanged at 1,514
-- Average selling price of deliveries down 2% to $484,000
-- Pretax income of $74.3 million, down 3% from $76.6 million
-- Net income of $54.6 million, or $0.86 per diluted share, down 15% from
$63.9 million or $1.03 per diluted share*
-- Effective tax rate of 26.6% vs. 16.6%
-- Gross margin from home sales up 40 basis points to 19.5% from 19.1%
-- Selling, general and administrative expenses as a percentage of home
sale revenues ("SG&A rate") of 11.3% vs. 10.9%
-- Dollar value of net new orders up 25% to $967.9 million from $776.2
million
-- Unit net orders increased 32% to 2,273
-- Monthly sales absorption pace increased 12% to 4.1
-- Average selling price of net orders down 6% to $425,800
* Per share amount for the 2018 second quarter has been adjusted for the 8% stock dividend declared and paid in the 2019 first quarter.
2019 Outlook - Selected Information
-- Backlog dollar value at June 30, 2019 down 1% year-over-year to $1.93
billion
-- Estimated gross margin from homes in backlog at June 30, 2019
slightly lower than 2019 second quarter closing gross margin of
19.5%
-- Backlog conversion ratio (home deliveries divided by beginning
backlog) for the third quarter estimated to be in the 39% to 41%
range
-- Active subdivision count at June 30, 2019 of 187, up 14% year-over-year
and 13% from December 31, 2018
-- Quarterly dividend of $0.30 ($1.20 annualized) declared in July 2019
About MDC
M.D.C. Holdings, Inc. was founded in 1972. MDC's homebuilding subsidiaries, which operate under the name Richmond American Homes, have built and financed the American Dream for more than 200,000 homebuyers since 1977. MDC's commitment to customer satisfaction, quality and value is reflected in each home its subsidiaries build. MDC is one of the largest homebuilders in the United States. Its subsidiaries have homebuilding operations across the country, including the metropolitan areas of Denver, Colorado Springs, Salt Lake City, Las Vegas, Phoenix, Tucson, Riverside-San Bernardino, Los Angeles, San Diego, Orange County, San Francisco Bay Area, Sacramento, Washington D.C., Baltimore, Orlando, Jacksonville, Seattle and Portland. The Company's subsidiaries also provide mortgage financing, insurance and title services, primarily for Richmond American homebuyers, through HomeAmerican Mortgage Corporation, American Home Insurance Agency, Inc. and American Home Title and Escrow Company, respectively. M.D.C. Holdings, Inc. is traded on the New York Stock Exchange under the symbol "MDC." For more information, visit www.mdcholdings.com.
Forward-Looking Statements
Certain statements in this release, including any statements regarding our business, financial condition, results of operation, cash flows, strategies and prospects, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of MDC to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among other things, (1) general economic conditions, including changes in consumer confidence, inflation or deflation and employment levels; (2) changes in business conditions experienced by MDC, including cancellation rates, net home orders, home gross margins, land and home values and subdivision counts; (3) changes in interest rates, mortgage lending programs and the availability of credit; (4) changes in the market value of MDC's investments in marketable securities; (5) uncertainty in the mortgage lending industry, including repurchase requirements associated with HomeAmerican Mortgage Corporation's sale of mortgage loans (6) the relative stability of debt and equity markets; (7) competition; (8) the availability and cost of land and other raw materials used by MDC in its homebuilding operations; (9) the availability and cost of performance bonds and insurance covering risks associated with our business; (10) shortages and the cost of labor; (11) weather related slowdowns and natural disasters; (12) slow growth initiatives; (13) building moratoria; (14) governmental regulation, including the interpretation of tax, labor and environmental laws; (15) terrorist acts and other acts of war; (16) changes in energy prices; and (17) other factors over which MDC has little or no control. Additional information about the risks and uncertainties applicable to MDC's business is contained in MDC's Form 10-Q for the quarter ended June 30, 2019, which is scheduled to be filed with the Securities and Exchange Commission today. All forward-looking statements made in this press release are made as of the date hereof, and the risk that actual results will differ materially from expectations expressed in this press release will increase with the passage of time. MDC undertakes no duty to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in our subsequent filings, releases or webcasts should be consulted.
M.D.C. HOLDINGS, INC.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
---
2019 2018 2019 2018
---
(Dollars in thousands, except per share amounts)
Homebuilding:
Home sale revenues $
732,844 $
749,608 $
1,380,122 $
1,357,296
Home cost of sales (590,172) (606,403) (1,114,724) (1,103,035)
Inventory impairments (200) (610) (750)
Total cost of sales (590,172) (606,603) (1,115,334) (1,103,785)
Gross profit 142,672 143,005 264,788 253,511
Selling, general and administrative expenses (82,712) (81,571) (164,973) (152,912)
Interest and other income 2,764 1,774 5,155 3,633
Other expense (1,110) (871) (2,301) (1,434)
Homebuilding pretax income 61,614 62,337 102,669 102,798
Financial Services:
Revenues 18,597 21,372 36,001 40,407
Expenses (9,574) (9,611) (18,531) (18,442)
Interest and other income 1,367 1,240 2,631 2,260
Net gain on marketable equity securities 2,327 1,278 7,167 125
Financial services pretax income 12,717 14,279 27,268 24,350
Income before income taxes 74,331 76,616 129,937 127,148
Provision for income taxes (19,738) (12,717) (34,794) (24,485)
Net income $
54,593 $
63,899 $
95,143 $
102,663
===
Comprehensive income $
54,593 $
63,899 $
95,143 $
102,663
===
Earnings per share:
Basic $
0.88 $
1.05 $
1.55 $
1.69
Diluted $
0.86 $
1.03 $
1.50 $
1.66
Weighted average common shares outstanding:
Basic 61,336,404 60,590,899 61,138,982 60,466,527
Diluted 63,323,267 61,604,286 63,023,149 61,525,442
Dividends declared per share $
0.30 $
0.28 $
0.60 $
0.56
M.D.C. HOLDINGS, INC.
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2019 2018
---
ASSETS (Dollars in thousands, except
per share amounts)
Homebuilding:
Cash and cash equivalents $
390,061 $
414,724
Restricted cash 12,911 6,363
Trade and other receivables 54,780 52,982
Inventories:
Housing completed or under construction 1,071,181 952,436
Land and land under development 1,156,009 1,180,558
Total inventories 2,227,190 2,132,994
Property and equipment, net 62,888 58,167
Operating lease right-of-use asset 31,600
Deferred tax asset, net 29,441 37,178
Prepaid and other assets 47,176 45,794
Total homebuilding assets 2,856,047 2,748,202
Financial Services:
Cash and cash equivalents 56,829 49,052
Marketable securities 48,105 40,879
Mortgage loans held-for-sale, net 109,337 149,211
Other assets 15,779 13,733
Total financial services assets 230,050 252,875
Total Assets $
3,086,097 $
3,001,077
===
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable $
58,986 $
50,505
Accrued liabilities 186,500 196,247
Operating lease liability 32,240
Revolving credit facility 15,000 15,000
Senior notes, net 988,683 987,967
Total homebuilding liabilities 1,281,409 1,249,719
Financial Services:
Accounts payable and accrued liabilities 60,498 58,543
Mortgage repurchase facility 83,039 116,815
Total financial services liabilities 143,537 175,358
Total Liabilities 1,424,946 1,425,077
Stockholders' Equity
Preferred stock, $0.01 par value; 25,000,000
shares authorized; none issued or outstanding
Common stock, $0.01 par value; 250,000,000
shares authorized; 61,922,406 and 56,615,352
issued and outstanding at June 30, 2019 and
December 31, 2018, respectively 619 566
Additional paid-in-capital 1,333,095 1,168,442
Retained earnings 327,437 406,992
Total Stockholders' Equity 1,661,151 1,576,000
Total Liabilities and Stockholders'
Equity $
3,086,097 $
3,001,077
===
M.D.C. HOLDINGS, INC.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
---
2019 2018 2019 2018
---
(Dollars in thousands)
Operating Activities:
Net income $
54,593 $
63,899 $
95,143 $
102,663
Adjustments to reconcile net income to net cash
provided by (used in)
operating activities:
Stock-based compensation expense 4,132 4,824 8,383 6,075
Depreciation and amortization 5,063 5,316 9,941 9,952
Inventory impairments 200 610 750
Net gain on marketable equity securities (2,327) (1,278) (7,167) (125)
Amortization of discount /premiums on marketable
debt securities, net (184) (366)
Deferred income tax expense 5,063 3,134 7,759 3,557
Net changes in assets and liabilities:
Trade and other receivables 13,735 944 (36) (2,317)
Mortgage loans held-for-sale 1,473 5,973 39,874 30,929
Housing completed or under construction (120,665) (68,198) (118,528) (133,576)
Land and land under development 42,934 (12,905) 24,438 (84,457)
Prepaid expenses and other assets (5,291) (5,497) (4,206) (5,108)
Accounts payable and accrued liabilities 2,607 9,070 (546) 15,835
Net cash provided by (used in) operating
activities 1,317 5,298 55,665 (56,188)
Investing Activities:
Purchases of marketable securities (331) (5,898) (5,116) (14,659)
Maturities of marketable securities 50,000 50,000
Sales of marketable securities 320 3,760 5,057 12,460
Purchases of property and equipment (7,474) (6,735) (13,860) (13,051)
Net cash provided by (used in) investing
activities (7,485) 41,127 (13,919) 34,750
Financing Activities:
Payments on mortgage repurchase facility, net (1,817) (9,307) (33,776) (31,521)
Dividend payments (18,521) (16,928) (35,636) (33,793)
Proceeds from exercise of stock options 10,241 5,553 17,328 5,835
Net cash used in financing activities (10,097) (20,682) (52,084) (59,479)
Net increase (decrease) in cash, cash equivalents
and restricted cash (16,265) 25,743 (10,338) (80,917)
Cash, cash equivalents and restricted cash:
Beginning of period 476,066 407,580 470,139 514,240
End of period $
459,801 $
433,323 $
459,801 $
433,323
===
Reconciliation of cash, cash equivalents and
restricted cash:
Homebuilding:
Cash and cash equivalents $
390,061 $
378,219 $
390,061 $
378,219
Restricted cash 12,911 7,443 12,911 7,443
Financial Services:
Cash and cash equivalents 56,829 47,661 56,829 47,661
Total cash, cash equivalents and
restricted cash $
459,801 $
433,323 $
459,801 $
433,323
===
New Home Deliveries
Three Months Ended June 30,
2019 2018
% Change
Homes Home Sale Average
Homes Home Sale Average
Homes Home
Average
Revenues Price Revenues Price Sale Price
Revenues
(Dollars in thousands)
West 785 $
384,530 $
489.8 769 $
391,806 $
509.5 2% (2)% (4)%
Mountain 534 287,476 538.3 522 268,541 514.4 2% 7% 5%
East 195 60,838 312.0 221 89,261 403.9 (12)% (32)% (23)%
Total 1,514 $
732,844 $
484.0 1,512 $
749,608 $
495.8 0% (2)% (2)%
Six Months Ended June 30,
---
2019 2018
% Change
Homes Home Sale Average
Homes Home Sale Average
Homes Home
Average
Revenues Price Revenues Price Sale Price
Revenues
(Dollars in thousands)
West 1,537 $
754,088 $
490.6 1,450 $
711,315 $
490.6 6% 6% 0%
Mountain 943 496,668 526.7 938 477,173 508.7 1% 4% 4%
East 392 129,366 330.0 398 168,808 424.1 (2)% (23)% (22)%
Total 2,872 $
1,380,122 $
480.5 2,786 $
1,357,296 $
487.2 3% 2% (1)%
Net New Orders
Three Months Ended June 30,
2019 2018
% Change
---
Homes
Dollar Average
Monthly
Homes Dollar Value Average
Monthly
Homes
Dollar
Average
Monthly
Value Price Absorption Price Absorption Value Price Absorption
Rate * Rate * Rate
(Dollars in thousands)
West 1,246 $
550,742 $
442.0 4.46 1,020 $
458,082 $
449.1 4.55 22% 20% (2)% (2)%
Mountain 690 318,275 461.3 3.56 508 250,454 493.0 2.97 36% 27% (6)% 20%
East 337 98,843 293.3 4.36 193 67,627 350.4 2.65 75% 46% (16)% 65%
Total 2,273 $
967,860 $
425.8 4.13 1,721 $
776,163 $
451.0 3.68 32% 25% (6)% 12%
Six Months Ended June 30,
2019 2018
% Change
--- ---
Homes
Dollar Average
Monthly
Homes Dollar Value Average
Monthly
Homes
Dollar
Average
Monthly
Value Price Absorption Price Absorption Value Price Absorption
Rate * Rate * Rate
(Dollars in thousands)
West 2,211 $
1,003,236 $
453.7 4.15 2,053 $
937,759 $
456.8 4.66 8% 7% (1)% (11)%
Mountain 1,409 669,523 475.2 3.53 1,175 590,045 502.2 3.45 20% 13% (5)% 2%
East 609 182,141 299.1 4.33 397 147,943 372.7 2.82 53% 23% (20)% 54%
Total 4,229 $
1,854,900 $
438.6 3.94 3,625 $
1,675,747 $
462.3 3.93 17% 11% (5)% 0%
*Calculated as total net new orders in period ÷ average active communities during period ÷ number
of months in period
Active Subdivisions
Average Active Subdivisions Average Active Subdivisions
Active Subdivisions
Three Months Ended
Six Months Ended
June 30,
%
June 30,
%
June 30,
%
2019 2018
Change 2019 2018
Change 2019 2018
Change
West 97 78 24% 94 75 25% 89 73 22%
Mountain 65 61 7% 65 57 14% 66 57 16%
East 25 25 0% 26 24 8% 23 24 (4)%
Total 187 164 14% 185 156 19% 178 154 16%
Backlog
June 30,
2019 2018
% Change
Homes
Dollar Average
Homes
Dollar Average
Homes
Dollar
Average
Value Price Value Price Value Price
(Dollars in thousands)
West 2,197 $
1,016,327 $
462.6 2,054 $
1,011,780 $
492.6 7% 0% (6)%
Mountain 1,509 739,921 490.3 1,490 766,539 514.5 1% (3)% (5)%
East 587 173,436 295.5 454 170,364 375.3 29% 2% (21)%
Total 4,293 $
1,929,684 $
449.5 3,998 $
1,948,683 $
487.4 7% (1)% (8)%
Homes Completed or Under Construction (WIP lots)
June 30,
%
2019 2018
Change
Unsold:
Completed 96 86 12%
Under construction 236 268 (12)%
Total unsold started homes 332 354 (6)%
Sold homes under construction or completed 3,023 2,980 1%
Model homes under construction or completed 457 373 23%
Total homes completed or under construction 3,812 3,707 3%
Lots Owned and Optioned (including homes completed or under construction)
June 30, 2019
June 30, 2018
Lots
Lots
Total
Lots
Lots
Total Total %
Owned Optioned Owned Optioned Change
West 8,611 2,446 11,057 7,906 2,916 10,822 2%
Mountain 6,457 2,741 9,198 5,329 4,041 9,370 (2)%
East 2,085 1,267 3,352 1,509 1,925 3,434 (2)%
Total 17,153 6,454 23,607 14,744 8,882 23,626 (0)%
Selling, General and Administrative Expenses
Three Months Ended June 30,
Six Months Ended June 30,
2019 2018 Change 2019 2018 Change
(Dollars in thousands)
General and administrative expenses $
39,326 $
40,372 $
(1,046) $
81,898 $
76,125 $
5,773
General and administrative expenses as a
percentage of home sale
revenues 5.4% 5.4%
0 bps 5.9% 5.6%
30 bps
Marketing expenses $
19,513 $
17,215 $
2,298 $
37,809 $
32,786 $
5,023
Marketing expenses as a percentage of
home sale revenues 2.7% 2.3%
40 bps 2.7% 2.4%
30 bps
Commissions expenses $
23,873 $
23,984 $
(111) $
45,266 $
44,001 $
1,265
Commissions expenses as a percentage of
home sale revenues 3.3% 3.2%
10 bps 3.3% 3.2%
10 bps
Total selling, general and administrative
expenses $
82,712 $
81,571 $
1,141 $
164,973 $
152,912 $
12,061
Total selling, general and administrative
expenses as a percentage of home sale
revenues 11.3% 10.9%
40 bps 12.0% 11.3%
70 bps
Capitalized Interest
Three Months Ended
Six Months Ended
June 30,
June 30,
2019 2018 2019 2018
(Dollars in thousands)
Homebuilding interest incurred $
15,980 $
15,639 $
32,011 $
31,264
Less: Interest capitalized (15,980) (15,639) (32,011) (31,264)
Homebuilding interest expensed
$
$
$
$ -
Interest capitalized, beginning of
period $
56,947 $
58,738 $
54,845 $
57,541
Plus: Interest capitalized during
period 15,980 15,639 32,011 31,264
Less: Previously capitalized interest
included in home and land cost of
sales (14,734) (16,150) (28,663) (30,578)
Interest capitalized, end of period $
58,193 $
58,227 $
58,193 $
58,227
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SOURCE M.D.C. Holdings, Inc.
